A Bad Idea Returns: The Balanced-Budget Amendment

Who was it that said there were signs of sanity and moderation breaking out in the Grand Old Party? False alarm. Just weeks after backing away from their threat to force the U.S. Treasury to default on its debts, Congressional Republicans are about to endorse another damaging economic idea that should be consigned to the history books: a balanced-budget amendment to the Constitution.

According to a piece by the National Review’s Robert Costa, Senate Minority Leader Mitch McConnell and his number two, John Cornyn, hope to introduce a bill as early as Thursday that which would enshrine in the Constitution a requirement for the federal government to balance its spending and revenues. House Republicans, including Paul Ryan, are also reportedly lining up behind the idea, which has long been part of the conservative agenda. In 1982, Ronald Reagan endorsed the concept. In 1994, it was an element of the Contract with America. And in 2010, it returned to the national agenda as part of the Tea Party platform. During the past thirty years, Congress has on numerous occasions considered and rejected bills incorporating a balanced budget amendment, most recently in 2011.

As I and many others have noted, there is no crisis that justifies immediate action to balance the budget. The deficit is falling relative to the size of the economy, and the U.S. Treasury is having no trouble selling bonds—interest yields on these bonds are at historic lows. Even if drastic action were needed, a balanced-budget amendment wouldn’t be the answer. It would encourage “creative” bookkeeping on the part of Congress, restrict the government from making much-needed investments, and risk plunging the economy back into a deep slump. And all of this without resolving the fundamental debate about the size and scope of the federal government going forward.

It’s no mystery why the G.O.P. is, once again, seizing on this old chestnut: unlike many Republican proposals, it’s popular with ordinary voters. (In one CNN survey from July, 2011, seventy-four per cent approved of the idea and twenty-four per cent opposed it.) With taxes and spending sure to dominate the political debate over the next year or so, McConnell and his colleagues are committed to a number of proposals that are not exactly crowd-pleasers: cutting entitlements and other popular government programs, raising the Medicare retirement age, cutting taxes on corporations, and giving high earners another tax break.

The President, by contrast, is falling back on the traditional Democratic tactic of defending Social Security and Medicare. A day ahead of his State of the Union address, in which he is expected to call for modest spending cuts and raising revenues by closing tax loopholes, his spokesman publicly rejected the option of raising the eligibility age for Medicare. If the price of defending the entitlement programs is allowing the sequester—including big cuts to defense spending—to go into effect on March 1st, the White House is apparently wiling to pay it.

In short, the political battle lines are being drawn, and they don’t favor the G.O.P. Hence the pivot to the balanced-budget amendment. While there is virtually no chance of it being enacted—like any alteration to the Constitution, it would require the approval of two-thirds of members of both Houses of Congress, plus the backing of three-quarters of the states—the mere act of campaigning for it will enable the Republicans to put Democrats on the defensive and cause internal schisms.

That is what the G.O.P.’s leaders are hoping for, anyway, and they have some reason for optimism. In the past, a number of prominent Democrats have expressed support for a balanced-budget amendment, albeit with differing levels of enthusiasm. Back in the nineteen-nineties, Harry Reid and Dianne Feinstein both expressed support for the idea, and as recently as 2011 Senators Mark Udall, Bill Nelson, and Joe Manchin all said that they supported it.

With politics driving the process, economic logic is strictly secondary. While all balanced-budget rules are suspect to begin with, some are less objectionable than others. Assuming the National Review report is accurate, this is a particularly damaging one. Based on a proposal that originally came from Senator Mike Lee, of Utah, and former Senator Jon Kyl, of Arizona, it would require Congress to balance the budget every single year not just over the course of the economic cycle. In order to run a deficit in a particular year—say, in response to an oil-price shock or a financial crisis—Congress would have to obtain a supermajority vote in both houses. To anybody but a conservative ideologue, it is pretty obvious that such a mechanism could well end up accelerating economic downturns. Even most Republican economists concede that the appropriate response to an economic slump is to allow the deficit to expand, first by allowing the so-called automatic stabilizers, such as unemployment benefits to kick in, and then by cutting taxes or increasing government spending.

According to Costa’s report, another key element of the Republican proposal is limiting federal spending to eighteen per cent of the G.D.P. Even some conservative commentators acknowledge this is an unrealistic target. Over the past forty years, federal spending has averaged about twenty-one per cent of the G.D.P. At the moment, the figure is about twenty-three per cent. With the U.S. population aging, spending on health care and retirement benefits is inevitably rising. Merely stabilizing the spending-to-G.D.P. figure is an ambitious target. Bringing it down by five percentage points is pie in the sky—unless, of course, the Republicans are really serious about privatizing Medicare and Medicaid, doing something similar to Social Security, and cutting back on virtually all other government programs, including those at the Pentagon. And if they are, let them say so, rather than trying to hide behind a balanced-budget amendment.

Photograph by Alex Wong/Getty.

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